Skip to navigationSkip to main contentSkip to right columnADVERTISEMENTMoz FarooqueSun, June 21, 2026 at 7:33 PM GMT+2 4 min readGoogle stock investors were, for the most part, bracing for another AI spending headache.For some context, the tech giant had already bumped its full-year 2026 capex guidance to $180 billion to $190 billion, saying demand for AI compute is “unprecedented.”At the same time, 2027 capex is expected to rise significantly from 2026, according to its Q1 earnings filing.So Wall Street felt that Google's parent, Alphabet (GOOGL), would just continue shelling out money on chips, data centers, and cloud capacity while investors waited for proof that the spending could translate into durable sales.Morgan Stanley’s latest note changes the frame.In a note shared with me, the bank points to Google’s estimated high-priced compute-rental deal with SpaceX as a major signal that Alphabet might not simply be chasing capacity.It may be positioning AI products to monetize that capacity more quickly than Wall Street initially modeled.Investors continue worrying about Google’s growing AI bill, but Morgan Stanley feels that bill might also underscore a bigger revenue opportunity.So it leaves the question: Is AI spending still a margin risk, or the clearest sign that Alphabet’s next growth engine is already forming?Morgan Stanley says Alphabet’s AI spending should not be taken purely as a cost problem.The bank argues Google’s estimated $50/watt compute rental deal signals both urgency around AI capacity and confidence that higher-value products may be coming.It estimates that Google is renting about 110,000 Nvidia GB300 GPUs from SpaceX, representing roughly 220 MW of compute and about $11.04 billion in annualized expense.More AI:Goldman Sachs has blunt message for AI stock investorsMicrosoft CEO sends a blunt warning on AI and the tech ecosystemThe next AI infrastructure race has nothing to do with chipsHowever, the big shift is monetization.Morgan Stanley says its current Google Cloud estimates imply only about $14 billion of incremental revenue per incremental rack GW in 2027.That looks conservative if new AI tools tied to Gemini Enterprise, Vertex AI, Workspace, Wiz, and other cloud products drive healthier demand.The bank says Google Cloud’s ability to monetize incremental capacity at $25/watt in 2027 implies 27% upside to its current growth estimate.Morgan Stanley rates Alphabet overweight with a $375 price target.That target is based on a discounted cash flow and long-term EBITDA multiple framework and implies about 24 times 2027 earnings.The valuation case rests on AI-driven innovation across Search, YouTube, and Cloud, plus continued expense discipline.Terms and Privacy PolicyEU DSA contactPrivacy & Cookie SettingsMore Info